Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
2 Miners Headed South to Move North
02/16/2012 8:45 am EST
To be sure, precious metals and the mining stocks behind them have been on a heck of a ride for some years now, and this duo are in prime position to kick off some big profits in coming quarters, writes Mexico Mike of Investor’s Digest of Canada.
It’s been about ten years since the kickoff of the current raging bull market for both gold and silver. And although the ride has been bumpy at times, the fundamentals that have fueled rising metals prices are still around. So, we can be confident that another surge to new highs is coming in 2012.
Of course, the naysaying from many folks out there would suggest otherwise. But this is no surprise, since there have been naysayers aplenty at every pause in the trend before this latest correction.
Suffice it to say that reports of the demise of the precious metals bull are highly exaggerated. Moreover, bearish bumps on the road offer investors fantastic opportunities to load up on top-drawer junior miners that are trading well below recent market highs.
To uncover emerging junior producers with exceptional growth prospects, I’ve focused for many years on Mexico. Recently, I was able to tour some of the refurbished mines in Guanajuato, a state in south-central Mexico and one of the country’s most famous mining districts.
Two Vancouver-based outfits, Great Panther Silver Ltd. (Toronto: GPR) and Endeavour Silver Corp. (Toronto: EDR) control most of the state’s productive geology—geology that has yielded over a billion ounces of the metal.
Both companies are a case study of how fresh capital and talented management have rejuvenated Mexico’s mining sector. Mining is integral to the city of Guanajuato, and has been so since the Spanish colonial era. Then, the world’s most important silver mines were established in the region, spurring Guanajuato’s growth as a mining service center.
First Discovery Nearby
Guanajuato itself sits on the main geological structure near where the first silver discovery was reported almost 500 years ago. Indeed, a sports complex has been built atop an old tailings dump near the city center.
Mine workings and service structures stretch from the edge of the town through many miles of countryside. Great Panther was able to buy a big chunk of this district from a bankrupt mining cooperative in 2005. Experienced workers were rehired and then trained to meet modern mining standards.
The company refurbished and upgraded the processing plant while project geologists investigated the old mine workings. Early output consisted of lower-grade remnant resources that were processed to generate just enough cash flow to keep things afloat in the early years. Meanwhile, exploration work outlined new, high-grade resource zones in the old mines that hinted at future potential.
For a small company like Great Panther, which had to take on so many challenges at once, it was a steep learning curve. Since then, though, the company has emerged as a profitable producer, one with rapid growth potential.
To support modern new mine workings that have been extended into productive resource zones, the company has redeveloped key underground infrastructure. In addition, the processing plant has achieved optimum efficiency, allowing for greater production and enhanced profitability. All told, Great Panther has reported both growing production and improving earnings.
At the same time, a string of positive exploration results has expanded the total mineral inventory, including some entirely new discovery zones that have never been mined in the past.
In the meantime, Guanajuato has emerged as the company’s flagship mine complex. Along with a second producing mine at Topia, Great Panther has now pegged 2011 silver production at 1.5 million ounces. It also hopes to produce 1.7 million ounces in 2013.
Overall, the company hopes to see total metals output grow roughly 20% year over year. In 2007, Endeavour was also able to buy producing mines on the region’s same dominant vein structures, as well as immediately adjacent to those of Great Panther.
Like Great Panther, Endeavour opted to retain skilled workers, while setting about refurbishing old workings and modernizing the mill. It now boasts a superb new processing plant.
The company has also logged excellent results at the drill bit, outlining new ore bodies that compare to the historic bonanza grades that made the district famous.
The expanded resources for these mines are a testament to the success of Endeavour’s execs. A compliant resource estimate was completed shortly after the acquisition of the project that documented just over three million ounces of silver.
Since then, there’s been comprehensive exploration activity. Moreover, to grow its inventory of exploration targets, the company acquired several promising new property additions to grow its inventory of exploration targets.
Content Is Higher
One intriguing aspect to all this is the discovery of new zones that are elevated in gold content relative to the historic ore. The most recent resource update from December 2010 reported an estimated 16 million ounces of silver and 220,000 ounces of gold.
A substantial increase to this estimate is expected when recent exploration data is plugged in for the next update. Even as Endeavour has increased its total production each year since it bought the properties, its mineral inventory has been growing faster.
The company is committed to long-term growth at Guanajuato. For 2012, it plans to produce upwards of 4.2 million ounces of silver and 25,000 ounces of gold.
Both Endeavour and Great Panther are now much better equipped to continue to grow, given the strong foundations they’ve both built in Mexico.
Potential Is Strong
Both outfits have no long-term debt and show great potential for further resource development as exploration continues. They’re also the beneficiaries of well-tuned production that’s proved profitable—even during the metals slump.
Success at the end of the drill bit is the key part of this story. Because the former operators were unable to outline enough new resource zones to keep the historic mines running at peak production, these two Canadian companies were able to buy exceptional assets.
Not only have Endeavour and Great Panther proven there’s much more silver and gold to be mined, but they’ve shown there are many exciting exploration targets that remain to be tested.
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